OPEC+ Playbook

Thursday's OPEC+ meeting is a major risk to the oil market but it's ultimately only part of what needs to happen to rebalance crude. The Australian dollar was Wednesday's top performer, while the euro lagged on growing disagreements at the EU regarding Corona bonds. US Initial jobless claims will also command attention on Thursday.

In ordinary times, a 1-2 million barrel cut from OPEC would be major news but on Thursday the risk is that a 10 mbpd cut won't be enough. The US weekly oil inventory report showed that implied demand for crude was 14.446 mbpd last week compared to 21.86 pre-virus. That may flatter the global picture, but even at that level, it shows demand at 66% of normal. Extrapolate that globally, and it argues there is an excess of 35 million barrels per day.

Those are the types of numbers OPEC+ members and others invited to the meeting will hear on Thursday. The official talks begin at 4 pm in Vienna (10 am New York) and aren't likely to be over quickly.

Oil Barrels Maths

Algeria's oil minister said OPEC+ cuts could reach 10 mbpd on Wednesday in a headline that boosted crude 10%. Contrast that with a Russian report that hinted at a 14% cut for everyone from Q1 levels. That would be 1.6mbpd and around 4 mbpd from OPEC. Add in the extra 2.5 mbpd from Saudi Arabia since the start of April and that's still only 7.5 mbpd.

That gap could be bridged, but the OPEC meeting itself may be just the beginning. Saudi Arabia will also host a G20 conference on Friday. The risk is that OPEC cuts could have a conditional element that's taken to the G20. If so, more leaders could offer token pledges to manage oversupply but we suspect the market will sell soft commitments. Weekend risks loom large because Friday is a holiday in much of the world but draft texts from G20 meetings often leak beforehand so be on guard Thursday, especially late in the day.

Other events to watch for on Thursday are at 1230 GMT with the release of US initial jobless claims and Canadian employment. The consensus on US claims is for another 5m layoffs with a range around 2.5m-7.5m. The consensus on Canadian employment is -500K with 7.5% unemployment. The country has already announced more than 2 million job losses so there's an element of lag here but Statistics Canada in recent reports said they're trying to adjust, so the commentary will be an important part of the report.